How to Analyze Your First Rental Property in 5 Steps

Analyzing a rental property doesn't have to be complicated. Follow these five steps and you'll know within minutes whether a deal is worth pursuing.

Step 1: Gather the Numbers

You need five pieces of data to start:

1. 1.Purchase price — Listing price or your offer price
2. 2.Monthly rent — Check Zillow, Rentometer, or Rentcast for comps
3. 3.Property taxes — Look up on the county assessor's website
4. 4.Insurance estimate — Call your agent or estimate $100-200/month
5. 5.Loan terms — Down payment %, interest rate, and term

Step 2: Choose Your Loan Type

Each loan type changes the math significantly:

• Conventional — 20% down, best rates, requires good credit and W-2 income
• FHA — 3.5% down, lower barrier to entry, but requires owner-occupancy
• DSCR — 25% down, qualifies on property income, great for scaling
• Hard money — 30% down, 12%+ rates, for flips and bridge financing

Step 3: Calculate Cash Flow

Cash flow = Rental income - Vacancy - Expenses - Mortgage payment

A positive cash flow means the property pays for itself and puts money in your pocket every month. Target at least $100-200/month per unit for a single-family rental.

Step 4: Check Your Returns

Three metrics to evaluate:

• Cash-on-cash return — Target 8%+ for a buy-and-hold
• Cap rate — Compare to other properties in the same market
• DSCR — Should be above 1.20 for comfortable debt coverage

Step 5: Make the Decision

Ask yourself: - Does it cash flow after ALL expenses? (Not just mortgage) - Is the CoC return above my minimum threshold? - Am I comfortable with the total cash needed to close? - Are there any red flags in the expenses I need to verify?

If the numbers work, make the offer. If they don't, move on. There's always another deal.

Try running your first analysis on Caprium — enter any address and see all these metrics calculated instantly.